Polls bring wake-up call, but constitution includes NATO/EU aspirations
Recent polls that showed comedian Volodymyr Zelenskiy leading in the presidential race shocked everyone. Ukrainian voters seem to be sending a message to the powers that be: maybe we’d be better off with a comic than with “business as usual.” How serious respondents are in plumping for a man who plays a village teacher who becomes president is anybody’s guess. But respondents who claim to support Zelenskiy do not really believe he might become president, the same polls report. If Zelenskiy’s presidential prospects become realistic, many pranksters may change their views.
Meanwhile, President Petro Poroshenko keeps delivering results of historical significance. On February 7th, the Verkhovna Rada passed amendments to the Constitution that established Ukraine’s pro-Western external policy course. From now on, the Basic Law states that Ukraine aspires to full membership in the European Union and NATO. With this move, Poroshenko hopes to kill two birds with one stone: to consolidate the vote of Ukrainians who support Euro-integration, and to curtail the options for a future leader to reverse Ukraine’s pro-EU and pro-NATO course. Removing this amendment via the legislature will be very difficult, even if a new president is willing to make peace with Russia at any price.
The latest economic indicators send mixed signals. Industry fell in December 2018 by 3.5% y/y, reflecting poor results in core sectors. For 2018, industrial output inched up only 1.1%, far below expectations. At the same time, retail trade, the leading indicator for private consumption, performed strongly, up 5.6% y/y for 2018 and signaling a continuing strong consumer mood in the country.
Inflation remains strong m/m, with a 1% m/m increase in January, and food inflation the main component driving CPI higher. In y/y terms, consumer inflation slowed, on the back of a high comparative base, to +9.2% y/y in January.
The hryvnia has been inching up since the start of 2019. Non-residents purchasing Ukrainian state bonds are the key reason. However, we still expect the currency to weaken this year. The continued expansion of the current account deficit, which was up to $4.65 billion, or 3.6% of GDP, in 2018, coupled with concerns about financial inflows in the face of a double election year, are behind these depreciation expectations.
The budget in 2018 was balanced with only a 1.9% deficit, well below the 2.5% of GDP cap stipulated by the IMF.
Now read on...
Register to sample a report